Page 150 - RusRPTOct22

foreign manufactured aircrafts service. Now the task is to ensure smooth transition and achieve certain economic criteria for the aircrafts.
The deal is huge, but we will wait for more details to incorporate the new aircrafts. Overall, we think that the development is an important one for Aeroflot. For the time being, we are OK with our Hold recommendation for the name.
Aeroflot CEO Sergei Alexandrovsky announced Aeroflot Group's projections for passenger traffic this year and next year. The group estimates its total passenger traffic at 40mn passengers both this year (down 12.7% from 2021) and next year. He noted that the flagship airline Aeroflot (so, stripping out Pobeda and Rossiya) carried 2.7mn people in July (+11% y-o-y) and 2.8mn in August (+2%).
He also made several comments regarding international flights, as well as Aeroflot Group's strategy:
> The company is going to start flying to resorts in Egypt and to Goa (India) this winter. It has already added two more flights per week to the Seychelles and recently started selling tickets to Phuket (Thailand). It also plans to start selling tickets to Bangkok soon. In October, Aeroflot will begin flying to Dubai.
> The company plans to develop a regional hub in the Far East, either in Vladivostok or Khabarovsk. The hub will handle both international and domestic flights.
> The BoD will discuss the company's development strategy sometime soon. Alexandrovsky did not provide any specific details here.
Our view: Aeroflot's standalone passenger traffic data for July and August tells us that the airline carried 13.5mn passengers in 8m22, down only 1% y-o-y. At first glance, this looks like a quite positive sign given that traffic was down 18% y-o-y in 2Q22. However, the consolidated figures would be more representative, as Aeroflot has received some flights previously operated by Pobeda.
The group's estimate for passenger traffic in 2022 looks realistic to us. In fact, it is only 2% above our forecast (39.2mn, -13.2% y-o-y). We think that the new international flights in 4Q22 should support the company's operating performance heading into the year-end. However, the projection of flat traffic in 2023 seems conservative. In our model, we have Aeroflot Group's passenger traffic next year 9% higher (43.7mn passengers). We attribute the company's conservative view mainly to the uncertainty over when Russia's southern airports will reopen.
150 RUSSIA Country Report October 2022 www.intellinews.com